In the new issue of Regulation, economist Pierre Lemieux argues that the recent oil price decline is at least partly the result of increased supply from the extraction of shale oil. The increased supply allows the economy to produce more goods, which benefits some people, if not all of them. Thus, contrary to some commentary in the press, cheaper oil prices cannot harm the economy as a whole.

Two long wars, chronic deficits, the financial crisis, the costly drug war, the growth of executive power under Presidents Bush and Obama, and the revelations about NSA abuses, have given rise to a growing libertarian movement in our country – with a greater focus on individual liberty and less government power. David Boaz’s newly released The Libertarian Mind is a comprehensive guide to the history, philosophy, and growth of the libertarian movement, with incisive analyses of today’s most pressing issues and policies.

Search form

Archives: 07/2006

In a response to my defense of health savings accounts, Dr. Hébert makes a thoughtful case for the value added by primary care physicians. One way that PCPs add value is through “watchful waiting”:

It used to be that observation was one of the mainstays of medicine. Now everything is scanned, biopsied, and aggressively worked up because specialists find it easier to bill for expensive procedures than for recurring office visits. This shift away from observation towards aggression runs the risk of hurting patients, and is one of the casualties of the microspecialist system.

The (over-) use of such “premium medicine” is one of the main themes of Crisis of Abundance, a new book by Cato adjunct scholar Arnold Kling. As an illustration, Kling writes about a blogger named Quixote who received intensive treatment for her swollen eye:

My guess is that 30 years ago, a patient with similar symptoms would have been treated “empirically,” a term doctors use to describe a situation for which they do not have a precise diagnosis and treatment, so that instead they must use guesswork. A layman’s synonym for treated empirically would be “trial and error.” In this case, the patient might have been sent home with an antibiotic and perhaps a prescription for Prednisone, a steroid used to reduce inflammation. There would have been nothing else to do. In 1975, computerized medical imaging technology was new and exotic, with limited applications.

In contrast, in 2005, over the course of a few days Quixote was given a computed tomography (CT) scan, referred to a specialist, sent to a different hospital, referred to a specialty clinic, seen by a battery of specialists there, and given yet another CT scan. Ultimately, however, she was sent home, as she might have been 30 years ago, with an antibiotic, Prednisone, and no firm diagnosis.

Compared with 30 years ago, Quixote received more services, in the form of specialist consultations and high-tech diagnostics. However, the ultimate treatment and outcome were no different. This does not mean that medicine is no better today than it was a generation ago. The CT scans and specialist consultations could have turned out differently. They might have been critically important, depending on her actual condition. Under some circumstances, treating Quixote empirically with an antibiotic and Prednisone could have been a mistake, perhaps costing some or all of her sight in one eye.

Such is modern medicine in the United States. Doctors are able to take extra precautions. They can use more specialized knowledge and better technology to try to pin down the diagnosis. They can perform tests to rule out improbable but dangerous conditions. But only in a minority of cases does the outcome deviate from what would have been the case 30 years ago.

That’s from chapter one. The remaining chapters wrestle with the question of when we should make use of premium medicine.

(The Cato Institute will host a book forum for Crisis of Abundance from 12-2pm at Cato on Tuesday, August 29. Kling will present, and the Washington Post’s Sebastian Mallaby and NYU’s Jason Furman will comment on the book. Keep watching www.cato.org for more details.)

That’s the headline House Minority Leader Nancy Pelosi managed to get the Wall Street Journal to run after an exclusive interview. She told the Journal’s reporters that if Democrats take control of the House next year and raise taxes, they would use the money to reduce the federal deficit. And she promised to reduce the use of earmarks: “Personally, myself, I’d get rid of all of them,” she said. “None of them is worth the skepticism, the cynicism the public has… and the fiscal irresponsibility of it.”

If Republicans are going to spend like Democrats, it would be nice to think that Democrats might save like Republicans. But let’s take a reality check.

According to the National Taxpayers Union, in the first seven months of this Congress Nancy Pelosi introduced 22 bills that would increase spending and only one that would cut spending. Admittedly a better record than some Democrats: Rep. Charles Rangel (D-NY), who would be chairman of the Ways and Means Committee in a Pelosi-led Congress, introduced 80 spending bills and three cuts, for a net budget impact of $1.6 trillion. Even the misnamed Rep. Adam Smith (D-WA) introduced 44 spending bills and one cut. Another NTU report showed that Pelosi voted in the interests of taxpayers only 11 percent of the time on tax and budget votes. And her fiscal conservatism has been declining the longer she has been in Congress. In her early years in the House she sometimes voted for taxpayers as much as 25 percent of the time. But not recently.

For taxpayers, it looks like the fall election will be a choice between the devil we know … and another devil we know.

The Internal Revenue Service headquarters will remain at least partially closed until January while department officials attempt to repair tens of millions of dollars in damage wrought by last month’s storms, the IRS announced yesterday.

Both the Wall Street Journal and the New York Times jumped on the release of a new study by the National Center for Education Statistics this weekend. The WSJ’s headline was particularly dramatic: “Long-Delayed Education Study Casts Doubt on Value of Vouchers.”

No, it doesn’t.

And it is a failure on my part, as well as a failure of the school choice movement as a whole, that the media don’t understand why.

Taking the study entirely at face value, what it says is this: private school students consistently score better in math and reading on the National Assessment of Educational Progress (NAEP) than public school students, but their advantage essentially goes away if you apply a particular set of controls for the differing student characteristics between the two sectors (things such as wealth, race, etc.)

Okay, you say, but if private schools don’t significantly outscore public schools, what’s the point of school voucher programs or other reforms that would give all parents access to the public or private school of their choice? Why, in other words, is the Journal’s headline wrong?

It’s wrong because the point of voucher programs is to create a competitive education industry, and the existing population of U.S. private schools does not constitute such an industry.

A vigorous free market in education requires that all families have easy access to the schools of their choice (whether public or private); that schools are not burdened with extensive regulations on what they can teach, whom they can hire, and what they can charge, etc.; that consumers directly pay at least some of the cost of the service; that private schools not be discriminated against financially by the state in the distribution of education funding, and that at least a substantial minority of private schools be operated for profit.

This set of conditions does not exist in any state in the nation. Instead, American education is dominated by a 90 percent government monopoly that is funded entirely through taxation. The private sector occupies the remaining 10 percent niche, is almost exclusively operated on a non-profit basis, and is forced to charge thousands of dollars in tuition in the face of the “free” monopoly schools that spend an average of $10,000 per pupil per year.

This is not a market.

No study was necessary to point this out.

Competitive markets are characterized by innovation, inexorable improvements in cost effectiveness and the quality of goods and services, and the rapid growth of the most successful providers. None of this has occurred in the U.S. private education sector, precisely because that sector does not constitute a competitive market.

The last great innovation to transform classroom instruction occurred during the presidency of Thomas Jefferson: the invention of the chalkboard, around 1801. Since that time, the pace of innovation has been so slow that a student from the mid-1800’s would immediately recognize a modern classroom setting. The most sought-after private schools enroll only about a thousand more students today than they did a century ago. This degree of stagnation is unheard of outside of the education sector, because it is only in the education sector (at least in liberal democracies) that market activity has been so thoroughly extinguished by government monopoly provision.

Hence, this study of our current small, non-market niche of private schools does not allow any generalization to the sort of outcomes to be expected from a true free market in education—and the creation of such a market is the primary justification for voucher and other school choice policies.

If I were better at my job, and if the school choice movement as a whole had a more effective media machine, this fact would be widely understood and we wouldn’t see fallacious headlines like the one cited above.

A closer look at the findings

That major point having been made, let’s take a look at the study’s findings on their own merits, as an examination of the current crop of public versus private schools.

The first problem with the study is that it collects no data on per-pupil spending in public versus private schools. Private school tuition, according to the NCES itself, is about half of the average public school expenditure per pupil. While private schools have some other sources of revenue, they still spend thousands of dollars less per pupil than public schools even after taking these other revenues into account, and so may be dramatically more efficient even if their absolute achievement levels are comparable to those in public schools. Hence it is possible that, if spending were equalized, private schools would raise student learning substantially compared to current levels (while it has been shown that spending and achievement are largely unrelated in the public sector, this has not been demonstrated in the private sector. In fact, evidence from developing countries suggests that higher spending in private schools DOES increase student achievement).

Next, it is worth observing the specifics of the study’s findings. It reports that there is a small advantage to public schools in 4th grade math, but that this advantage is not present at the 8th grade. It further says that, at the 8th grade, private school students have a small advantage over public school students in reading. One possible interpretation of these findings is that public school students fall behind their peers in private schools the longer they spend in the classroom.

That, of course, is only one possibility. At any rate, it is clear that parents are most concerned with what their children know and are able to do at the end of their k-12 education, so if, by the later grades, private schools confer a significant advantage, this would definitely seem to favor them.

Methodological and Data Problems

All of the above discussion takes the study’s findings at face value. This may be ill-advised, since a preliminary review suggests that there may be real methodological problems and potentially serious data problems. Several of the control variables used in the model seem problematic, including the following.

The rate of student absenteeism

It is entirely possible that sectoral differences in the feeling of community or level of personal attention, ability of school staff to motivate students, etc., could affect student absenteeism. So it is erroneous to treat this as exogenous (i.e., as independent of school sector) and to control for it.

School size

This variable is clearly endogenous (i.e., affected by school sector). Parents tend to prefer schools in which teachers know all the students by name and which create a friendly, community atmosphere. This is much easier in smaller schools, and hence there is a competitive pressure not to get too large in the private education sector. No such pressure exists in the public sector, where contrary bureaucratic incentives encourage large school size. As a result, the average public school is roughly three times the size of the average private school: 521 students versus 182. It is thus unjustifiable to pretend that school size is independent of school sector.

The percentage of students in the Title I program

A report by the Congressional Budget Office notes that “About 97 percent of public schools and 45 percent of private schools participate in the school lunch program.” This vast difference in level of participation by schools may have a significant effect on the share of eligible students who are in fact being served by the program.

Sample specification problems

Between a fifth and a quarter of the private schools selected for the study did not participate. The authors make no serious attempt to analyze non-participants to determine how and to what extent they might differ from participating schools in ways related to student performance. This could bias their results in unknown ways.

It seems likely that public and private sector schools apply the federal Specific Learning Disability label differentially. This label states that children are disabled if they perform at a level below what would be expected for students of their age and intelligence. It does not account for the possibility that poor performance may be the result of poor instruction. Roughly six percent of all public school students are placed in this category, making up nearly half (43%) of all students classified as disabled in the public sector. Among private schools participating in this study, a total of 3 to 4 percent of students are classified as suffering from ANY disability, mental or physical. Because students classified as SLD can be excluded from the test taking pool or given extra time or other accommodations, differential SLD classification rates between the sectors may affect sectoral mean scores (because these students, by definition, perform below the average of their peers).

Instrument selection

Tom Loveless has pointed out in a paper for the Brookings Institution that the NAEP mathematics test does a poor job of measuring the skills that it is purported to measure. Calculator use is allowed throughout, so it does not measure basic arithmetic ability. More advanced topics such as algebra with fractions, are also all but absent, making it a poor test of these more advanced skills. If there are differences in either of these important areas between the sectors, the NAEP will not pick it up. It is natural for scholars to want to analyze the data they have, but readers should be aware of the shortcomings of those data as a measure of both basic and advanced mathematical ability.

Conclusion

Taking all of the above analysis together, this study’s findings would have little bearing on market-based reforms such as vouchers and tax credits even if it were methodologically flawless. Even as a comparison of public schools and the existing (non-market) crop of private schools, it leaves much to be desired because it neglects to consider the substantially higher per-pupil spending of public schools.

But the study, as noted above, is not methodologically flawless. Several of its control variables appear to be misspecified, and so its adjusted test score averages may be significantly biased. It makes no attempt to assess the impact of the non-participation by between a fifth and a quarter of all the private schools selected for participation in the study – another probable source of bias. And it uses a mathematics test (the NAEP) that has been shown to do a poor job of assessing both basic arithmetic and more advanced mathematical skills, thus obfuscating possible differences in performance in these (rather important) areas among the students tested.

In a nutshell: this study does not say what some reporters think it says, and it may not even say what its own authors think it says.

The drive to eliminate 527 groups appears to have failed for this year. That is good news for free speech. But maybe the story is even better. Maybe Congress won’t eliminate 527s next year or the year after. Let me explain.

First, a little history. 527s rose to prominence in the 2004 presidential campaign. The Democrats used 527s to raise several hundred million dollars to help the Kerry campaign. The Republicans by and large did not use 527s. Party leaders wanted to keep control of the GOP campaign. For reasons of partisanship and control, Republican leaders wanted Congress to “close the 527 loophole.”

They have failed to do that. Democrats were willing to filibuster to block the legislation, and seven Republican senators were unwilling to support the effort to end 527s.

However, things could change. To succeed in the Senate, the 527 ban will need more unified Republican support plus a few stray Democrats (say, about 10 of them) voting contrary to the wishes of their party’s leaders. The latter could happen. An endangered incumbent of either party values his re-election more than party discipline. Twenty percent of the GOP in the House voted for McCain-Feingold, the wishes of their leaders notwithstanding.

If the Democrats use 527s to attack Republican incumbents, the GOP might be more unified on this issue. If the GOP in turn uses 527s to effectively threaten vulnerable Democratic senators, those incumbents might consider voting with the GOP to “close the 527 loophole.” (It’s free speech, not a loophole, but you get my point).

But the GOP leadership does not want to use 527s. They highly value retaining control over campaigns. As long as that remains true, vulnerable Democrats will not be threatened by 527s and will not provide the necessary votes to override a filibuster in the Senate.

In sum, 527s will probably survive so long as Karl Rove runs the Republican show.

The problem is institutional; when an organization’s membership doesn’t enjoy feast or famine based on the success of the organization, very little can bring it into focus and create success. … Congressional and public oversight is a weak, weak substitute for competitive pressure.

But the FBI’s computer systems have to be fixed, don’t they? They do. And to get there, you might have to shrink the FBI and law enforcement generally — especially federal law enforcement.

Because of the nature of bureaucracies, I don’t think there is an effective management solution to the FBI’s problems with IT. The better answer occurs at a higher level of abstraction:

Too many risks and threats are being treated as public problems to be dealt with through law enforcement when they should be treated as private problems to be dealt with through security.

To illustrate: Imagine that the nation’s garages had been designed without garage doors. People finding that their lawn mowers and garden tools were being stolen could call the cops (public/law enforcement) or design and install garage doors (private/security). Much going on in Internet security and online anti-fraud these days equates to people without garage doors calling the cops. There should be more personal and corporate responsibility, less government and law enforcement.

Another example: Starting more than 30 years ago, the U.S. government started taking responsibility for airline security (public/law enforcement) rather than leaving it with airlines (private/security). In fact, President Nixon announced expansion of the air marshals program on September 11, 1970, 31 years to the day before 9/11.

Mixed responsibility allowed both the public and private sectors to avoid ownership of the risk that a flight would be commandeered and used as a weapon. After 9/11, the government took further control over airline security and absolved airlines of the liability that might have accrued to them in the courts. (I don’t think they should have been liable for the full consequences of 9/11 or would have been found liable in well-functioning courts, except perhaps for the lives of their passengers.)

The lesson that private owners of critical infrastructure across the country learned is: Failure to secure themselves will bring them protection from liability, subsidies, and government-provided security services. In other words, they have been shown that leaving their garage doors open and calling the cops is better for them than taking responsibility. (In insurance economics, this is called “moral hazard.”)

“How do you fix the FBI’s computers?” You don’t. And you won’t. That’s the best answer I know.

Does it come off as too ideological to argue that the FBI should be smaller? Consider that the management problems at the FBI are merely part of a different ideological choice: having a large federal law enforcement apparatus. It doesn’t have to be this way, and the management problems are a product of the fact that it is.

Does it come off “soft on crime” to argue that federal law enforcement should be reduced? The opposite tack — “tough on crime” — means accepting incompetent law enforcement, which is the best friend crime ever had.

Remember when some of us limited-government types were wondering when the Democrats would finally realize voters were fed up with the GOP’s massive federal budgets and start talking about fiscal discipline? Well, it’s finally happened — the talking, at least. House minority leader Nancy Pelosi just gave an interview to the Wall Street Journal (subscription required) in which she professed that Democrats would launch a campaign to reduce the number of budget earmarks if they won a House majority in November.

She even sounded a bit like Jeff Flake at times: “Personally … I’d get rid of all of them. None of them is worth the skepticism, the cynicism the public has … and the fiscal irresponsibility of it.”

Most of the time, her message degenerated into standard Democratic tones. Pelosi still hopes to eliminate the Bush tax cuts for high-income taxpayers and hike the minimum wage. Yet even her support for the latter seemed to be focus-group tested: “We will not support a raise for Congress until Congress supports raising the minimum wage.” But that’s hardly a concession to fiscal discipline — it’s a hellacious twofer! (If you like this bad policy, you should love this even worse one!)

Frankly, I can’t help but be skeptical that Pelosi is really interested in getting federal spending under control. Nor am I convinced that she could keep her troops in line in such a battle. She and other Democrats had their chance to rail against earmarks and the GOP spending explosion during the past five years, but most — with very few exceptions, like Rep. Jim Cooper of Tennessee — sat out that fight.

What Pelosi really wants, of course, is to regain Democratic control of the House. The good news is that she feels like she has to talk even a little like a fiscal conservative in order to do it.

The GOP spending explosion has been awful to behold. Perhaps the fact that the public’s outrage over it is loud enough to entice a San Francisco Democrat to try to sound a teensy bit like a budget hawk might be worth savoring.